DUG Technology (ASX:DUG) has had a strong run on the stock market, with its share price up a significant 38% over the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. In this article, we decided to focus on DUG Technology's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. Simply put, it is used to evaluate a company's profitability compared to its equity.
Check out our latest analysis for DUG Technology.
How do I calculate return on equity?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, the ROE for DUG Technology is:
24% = USD 4.9 million ÷ USD 21 million (based on trailing twelve months to June 2023).
“Return” refers to a company's earnings over the past year. One way he conceptualizes this is that for every A$1 of shareholders' equity, the company earned him A$0.24 in profit.
What is the relationship between ROE and profit growth rate?
It has already been established that ROE serves as an indicator of how efficiently a company will generate future profits. We are then able to assess a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Generally speaking, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
A side-by-side comparison of DUG Technology's earnings growth and ROE of 24%.
Firstly, we notice that DUG Technology has a very high ROE. Furthermore, the company's ROE is high compared to the industry average of 11%, which is quite noteworthy. Perhaps as a result of this, DUG Technology has been able to grow its net income at a respectable 13% over the past five years.
Next, when we compare it to the industry's net income growth, we find that DUG Technology's reported growth rate is lower than the industry's growth rate of 21% over the past few years. This is what we don't want to see.
Earnings growth is a big factor in stock valuation. Investors should check whether expected growth or decline in earnings has been factored in in any case. This will help you determine whether the stock's future is bright or bleak. One good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings outlook. So you might want to check whether DUG Technology is trading on a higher or lower P/E ratio, relative to its industry.
Does DUG Technology reinvest its profits efficiently?
DUG Technology does not pay dividends. This means that all profits are reinvested into the business, which explains the company's considerable revenue growth.
summary
Overall, we're pretty satisfied with DUG Technology's performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. As a result, it's no surprise that revenue increases significantly. Having said that, a look at current analyst forecasts shows that the company's earnings are expected to gain momentum. If you want to know the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
